U.K. Struck by the Unemployment Bug

They say the holiday season is the most wonderful time of the year. Hah! Try explaining that to the 128,000 people that recently lost their jobs in the U.K.

In the three-month period that ended in October, a total of 128,000 Britons were added to the unemployment pool. This brought the total unemployment count to 2.64 million, which translates to an unemployment rate of 8.3%. Yeah, this isn’t exactly the jolliest news considering that the unemployment rate was only at 7.9% from May to July.

What’s surprising is that the recent employment figures were accompanied by low claimant count data. Claims for unemployment benefits only rose by 3,000 in November, a far better number than the 16,100 increase that the markets were anticipating.

But don’t let the better-than-expected claimant count data fool you. As Pip Diddy mentioned in the past, the midyear change in the requirements for eligibility of single-parent benefits has distorted recent claimant count change data. It led to big increases in claims for unemployment benefits in the middle of the year, and now we’re seeing its effects finally wear off.

From where I’m standing, it looks like the U.K. is pretty much in the same boat as the U.S. By that I mean that its labor market is being hit from both sides – the private AND the public sector!

On one hand, we have private sector companies, which have been shedding jobs due to the deteriorating outlook for the economy. And on the other hand, we have the government, which has already cut hundreds of thousands of jobs to bring down costs and erase the country’s budget deficit.

Unfortunately for the U.K. job market, it looks like it still has a long way to go before it reaches the light at the end of the tunnel. In fact, a study by Manpower, a recruitment company, even showed that the U.K. employers’ hiring plans are at their weakest in three years! Furthermore, the government’s austerity programs are expected to shed as much as 700,000 jobs in the public sector alone.

Right now the outlook remains grim for the U.K. job market. Spencer Dale, the BOE’s chief economist, says that he expects the economy to remain weak in the long run, and that a few periods of contraction are inevitable.

So what do the latest employment numbers mean for the BOE’s future monetary policy decisions? At the very least, the weak employment figures leave room for the central bank to provide more economic stimulus. After leaving its asset purchases program unchanged at 275 billion GBP in its latest monetary policy decision, market players are now expecting the BOE to increase its program by at least 75 billion GBP in February and another 50 billion GBP in May 2012.

If the central bank decides to step up its quantitative easing efforts, or if the economy does contract as Spencer Dale has predicted, then we will most likely see demand for the pound weaken against the safe haven currencies in the long run.

We introduce people to the world of currency trading, and provide educational content to help them learn how to become profitable traders. We're also a community of traders that support each other on our daily trading journey.